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Tuesday, August 31, 1999 Published at 15:26 GMT 16:26 UK

Business: The Economy

Russia 'lied to IMF'

No more smiles all around: Mr Camdessus meets the Russians

The head of the International Monetary Fund says it will continue to lend to Russia even as it investigates allegations of corruption.

Michel Camdessus was commenting on allegations that up to $15bn in funds had been siphoned off from Russia into bank accounts in New York, some of it allegedly from IMF loans.

[ image: The collapse of the rouble led to capital flight]
The collapse of the rouble led to capital flight
There have been calls in the US Congress to suspend further loans to Russia until the matter is fully investigated.

But Mr Camdessus vigorously defended the IMF's lending programme to Russia, while accepting that the Russian central bank had lied to the fund in 1996.

He said that the IMF was now insisting on more checks, and that the current $4.5bn loan was just going from one IMF account to another, repaying previous lending.

But he admitted that in the past the Russian authorities had deceived the IMF about the size of their currency reserves, by hiding them in an offshore account of a Guernsey-registered company Fimaco.

" "I have ordered additional inquiries into the relations between the Central Bank with its offshore subsidiaries," Mr Camdessus said.

"We want only control over what we can check: whether the Russian Central Bank is abiding by the conditions for our aid," he added.

"Should we break off all cooperation with Russia? We do not think so, even if this incident is a serious failure to respect the agreement," he concluded.

Money-laundering charges

Mr Camdessus said that there was no evidence that IMF funds had been misused, but the matter would be kept under review as fresh loans were made.

The IMF chief said he did "not appreciate seeing the IMF cited alongside the Russian Mafia or oligarchs."

But he said there could be a positive outcome to the scandal.

"Finally the mafias of all kinds are realising that they are no longer safe in the western banks. I hope this will give us the chance to step up surveillance of the suspect operations."

Capital flight

Mr Camdessus admitted that massive capital flight had taken place from Russia during the crisis years.

"Theft, for the moment, is not proved, but the flight of capital is evident. The problem is neither new nor peculiar to Moscow. All through the 1980s the IMF lent to the countries of Latin America while knowing that there were massive flights of capital."

Many economists believe that the amount of money that left Russia far exceeds the size of the Western loans to that country.

Mr Camdessus accepted that the IMF had underestimated the difficulties of rebuilding state institutions in Russia.

"We contributed to creating an institutional desert in a culture of lies, taking of advantages inherited from the communist regime," he said.

IMF lending is crucial if Russia is to balance its budget, fund its huge international debt, and receive aid from other official sources.

In Tokyo, Japanese Prime Minister Keizo Obuchi told visiting Russian First Deputy Prime Minister Viktor Khristenko that Japan's government had decided to unfreeze a $1.5bn credit for Russia.

And the World Bank, the IMF's sister organisation, has offered a $400m loan to develop Russia's road network.

IMF officials are still in Moscow, discussing Russia's plans to restructure its troubled banking sector. They will report to Washington before any further funds are released.

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